JPMorgan's Dimon: Fitch Downgrade 'Doesn’t Really Matter That Much'

(Yahoo!Finance) - Count JPMorgan Chase (JPM) CEO Jamie Dimon among those in the financial world who aren't that concerned about the downgrade of US debt by Fitch Ratings.

"It doesn’t really matter that much," Dimon said during an interview with CNBC in Bozeman, Mont. "It's the markets that decide, not the ratings agencies that make these big decisions."

Fitch lowered the US government's top credit rating Tuesday from AAA to AA+, citing fiscal and political instability, sending stocks lower on Wednesday.

The timing of the move puzzled economists and investors.

“Why now?” Mohamed El-Erian, president of Queens’ College, Cambridge University and an economic adviser to Allianz, told Yahoo Finance Live. “When you look at the reason, you scratch your head.”

The downgrade also drew an angry response from the Biden administration, with the Treasury Department calling it "arbitrary" after the White House and Congress averted a debt default more than two months ago by raising the debt ceiling.

Dimon, who is in the midst of a countrywide bus tour visiting clients and bank branches, told CNBC the US "should get rid of the debt ceiling" but emphasized that the credit of the US is "sound" and "should be the highest-rated credit in the world."

It is "ridiculous" that countries such as Canada have higher credit ratings, he added. "This is the most prosperous nation on the planet. It's still the most prosperous nation on the planet."

Bank stocks did not shrug off the US debt downgrade Wednesday. JPMorgan as well as Bank of America (BAC), Citigroup (C), and Wells Fargo (WFC) fell between 1% and 1.6% Wednesday while the KBW Nasdaq Bank Index (^BKX) fell 1.1%.

Banks are one of the largest holders of US Treasuries. If the value of those Treasuries declined significantly, bank assets values would also drop.

They are highly incentivized by regulators to hold Treasuries because those assets are considered safer than other bonds. The good news is that they don't have to hold more capital if they own AA+ bonds as opposed to AAA.

“They can’t walk away from Treasuries,” Dick Bove, a bank analyst for Odeon Capital, told Yahoo Finance. “If Moody’s, S&P, or Fitch all downgraded those assets to triple B, they still have to buy them,” he added.

By David Hollerith · Senior Reporter


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